MPAA's Megaupload suit: A broadside at pirates that may hit others

German national Kim Schmitz, also known as Kim Dotcom, of Megaupload in 2012.

German national Kim Schmitz, also known as Kim Dotcom, of Megaupload in 2012. (David Rowland / EPA)

Jon Healey

The major Hollywood studios' lawsuit against Megaupload, a now-defunct online storage site, is not just an attempt to punish a company that made millions by building a platform beloved by online pirates. It's also a bid to force online companies to bear more responsibility for enforcing copyrights, something the entertainment industry has long sought from the courts, with limited success.

A federal grand jury indicted Megaupload in early 2012, accusing the company and/or its top executives of criminal copyright infringement, conspiracy, wire fraud, money laundering and racketeering. (The company and its leaders have denied any wrongdoing.) So it was only a matter of time before the Motion Picture Assn. of America responded with a civil claim seeking hefty damages for infringing downloads and streams. The complaint lists 30 movies released by the six major studios that were among the titles pirated, ranging from such chestnuts as "Ghostbusters" to new releases such as "Crazy, Stupid, Love."

The lawsuit follows a familiar path, accusing Megaupload Limited (the company behind the site), Chief Executive Kim Dotcom and two other company leaders of two types of indirect infringement. First, they allegedly induced users to infringe by offering financial rewards to those who uploaded content that others frequently streamed or downloaded. And second, they're vicariously liable because they allegedly had the right and ability to control users' infringements, and they benefited financially from them.

Those claims don't break any new ground. Similarly, the lawsuit accuses the company and its executives of direct infringement for allegedly uploading, downloading and streaming copyrighted movies without authorization, a claim found in many of the suits filed by the entertainment industry.

Less typical is the claim that the company, Dotcom and other executives directly infringed by providing a site that others could use to store and view pirated works. In other words, the combination of the site and the company's business model made the company directly responsible for the infringements initiated by its users.

"The infringing files resided on servers controlled by Megaupload Limited," the complaint states. "Megaupload Limited caused and effected the infringing acts of providing copies of those works to its users, and promoted additional infringement by providing the uploading user a URL link that allowed anyone with the link to access the file."

The same thing could be said of YouTube, Dropbox or any other legitimate site that offers online hosting for content that people want to share, some of which happens to be infringing. Offering a link to a file you've just uploaded is standard operating procedure for every locker and user-generated-content service. And a company trying to compete with YouTube may naturally want to give people an incentive to upload content that attracts a big audience; such incentives could lure upstart content creators such as Freddie Wong and Jenna Marbles. Then again, YouTube has figured out a way to offer incentives that encourage creators to upload their own content, rather than having other people do it for them in order to claim the benefits.

The 1998 Digital Millennium Copyright Act gives companies that host content immunity from lawsuits when their users infringe, provided that they promptly take down disputed material when asked by a copyright owner. And Megaupload offered copyright holders an "abuse tool" that supposedly would remove pirated files quickly. The problem, according to the MPAA's lawsuit (and the federal indictment), is that the tool was bogus.

Significantly, the lawsuit doesn't stop there. It says the company should have done more to prevent infringements through technical measures. For example, it argues that Megaupload could have required uploads to be password protected or taken other steps to limit the potential audience for those files. It also says the company could have used digital fingerprinting technology to block the uploading of copyrighted files. Megaupload used filters to block "illicit" content, but it refused to use the same technology to stop an infringing file that had been taken down from being uploaded again.

The reason Megaupload didn't take those steps, the lawsuit alleges, is that its business model depended on piracy. "Megaupload Limited played an active role in ensuring that it had the most popular content on its servers, that the URL links to those infringing content files were widely disseminated on the Internet, and that the links were advertised and promoted by pirate linking sites, so that the maximum number of Megaupload users would access the infringing content," the complaint asserts. "Thus, Megaupload Limited did not merely respond to user requests in a passive, content-neutral, and automated manner. To the contrary ... Megaupload Limited was, during the operation of Megaupload, actively involved in attracting and storing countless copies of infringing content, and making that content broadly available and accessible to the public at large."

To be clear, I have no sympathy for Megaupload. I just wonder whether the bad facts of this case may lead the courts -- in this case, a federal judge in Virginia, where some of Megaupload's servers were located -- to impose requirements on disruptive but legitimate innovators that the courts had previously declined to impose. In particular, the courts have repeatedly found that online companies have no duty to police their sites or networks for infringement, to use fingerprinting technology to filter out pirated works or to make sure that files that have been taken down aren't uploaded again to a new URL.

Copyright holders have a point about files that are quickly re-uploaded; that seems like a problem Congress ought to solve. But websites shouldn't be expected to identify pirated files or preempt infringements; only copyright owners are in a position to tell authorized from unauthorized uploads.

Nevertheless, it's easy to imagine the rampant piracy enabled by Megaupload causing the courts to shift the legal burden for enforcing copyrights from the copyright holder onto websites and onlines services. To paraphrase a familiar phrase, bad business models can lead to bad law.